Rutgers boards approve UMDNJ integration

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November 19, 2012 at 11:34 AM

The two governing boards of Rutgers University today voted to approve the restructuring of New Jersey's higher education landscape, removing the final hurdle to reshaping Rutgers, the University of Medicine and Dentistry of New Jersey and Rowan University.

After a closed session and public comments, Rutgers' boards of governors and trustees voted for the restructuring legislation that was signed by Gov. Chris Christie earlier this year.

"These are precisely the issues that can tear a university apart," said Dr. Robert Barchi, president of Rutgers. "That has not happened here."

One of the largest, previously unanswered questions surrounding the restructuring was the cost to Rutgers of absorbing UMDNJ's assets in North and Central Jersey. According to the resolution, Rutgers would take on roughly $456 million in debt from UMDNJ, which could be restructured. Roughly $116 million of UMDNJ's debt will be allocated to University Hospital, and $57 million would be allocated to Rowan as it absorbs the School of Osteopathic Medicine.

Rutgers currently has nearly $1.2 billion in debt, plus $450 million approved for other projects.

On an annual debt service basis, the UMDNJ debt would remain on Rutgers' books until 2036. The credit rating of Rutgers could be downgraded by taking on the assets, but there is "major upside potential beyond the first year," according to Barchi. It is estimated the rating would be downgraded one step, though it could drop two steps, based on UMDNJ's weak balance sheet.

Bruce Fehn, treasurer of the board of governors, said a balance sheet of combined Rutgers and UMDNJ will have more than $5 billion in assets. The base case the boards compiled during the due diligence steps was based on there being no synergies between the two schools in order to create the most conservative estimates possible.

Rutgers also worked with the state Department of Treasury to establish a memorandum of understanding that the state, not Rutgers, would be responsible for medical malpractice claims associated with UMDNJ, which Barchi said was a grave concern for Rutgers before the memorandum was crafted.

Risks for Rutgers during implementation include the increased risks of becoming a clinical care provider, risks of changing state funding and risks during implementation. Despite these risks, Brachi recommended the integration for its opportunities, including creating a "powerhouse" of health care delivery.

Questions remain about University Hospital; the state has issued a request for proposal for an ownership partner to take over when UMDNJ is no longer a freestanding institution. Rutgers will not be involved in monitoring the process of how the state will handle the debt and divestment of the hospital from UMDNJ, according to Ralph Izzo, chair of the board of governors.

The resolution to approve integration was unanimously approved by the board of governors, and the board of trustees affirmed with several absences and two recusals.

The reorganization of the schools has a deadline of July 1, 2013, but Barchi said that is when some of the implementation planning can begin. He added that the following year would include many of the expected changes.